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Brexit plans continue despite UK Supreme Court ruling

The UK Supreme Court has rejected the government’s appeal against the high court ruling that Article 50, which would begin the official process for the UK’s exit from the EU, cannot be triggered without a parliamentary vote.

The decision was announced Tuesday following hearings held in December. The court split 8–3 on the matter but agreed unanimously that the devolved parliaments of Scotland and Wales did not need to be consulted before Article 50 was triggered. Scotland, Wales, and Northern Ireland do not have power of veto over Brexit, they ruled.

Despite the requirement for a vote, the government still intends to begin the official process for the UK’s exit from the EU by the end of March. Brexit Secretary David Davis told the House of Commons that the government would publish a bill in the coming days, and restated the government’s commitment to triggering Article 50 by the end of March.

Prior to the vote, Members of Parliament are expected to demand more detail about the government’s plans than has been provided in the seven months since the referendum. Their aim is to ensure proper scrutiny of the terms of any deal agreed with the EU, and the best possible outcome for Britain, rather than to overturn the decision to withdraw from the EU. So the outlook for businesses is unaffected by the verdict.

Prime Minister Theresa May last week gave a speech highlighting her priorities for the Brexit negotiations and indicated that Britain would no longer be part of the European single market, leaving finance institutions, importers, and exporters with unanswered questions about the impact on their business models.

The decision to leave the EU has caused the financial sector to review its place in the UK. According to a Reuters report, UBS and HSBC have said they would each relocate 1,000 staff away from London if passporting rights within the EU are not retained.

Though many institutions have been researching alternative destinations, it appears relocation would be a last resort. “The banks are actually very keen not to move jobs if they can avoid it, not least because their staff don’t generally want to move overseas,” said Anthony Browne, CEO of the British Bankers’ Association.

“The government’s support for interim arrangements is essential to ensure there are no cliff-edge effects when the UK leaves the EU,” Browne added. The banks would welcome an outcome that allows for continuation of service both for operations based in the UK and branches and subsidiaries serving the UK market from other EU nations.”

In response to May’s speech, business organisations underlined the importance of clarity about the terms of negotiations and of regular updates to maintaining confidence.

“Ruling out membership of the single market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU,” Carolyn Fairbairn, director-general of the Confederation of British Industry, said in a statement. “But businesses will welcome the greater clarity and the ambition to create a more prosperous, open, and global Britain, with the freest possible trade between the UK and the EU.”

“From the point of view of business, getting a broad-ranging free trade deal would be preferable to falling back on World Trade Organisation rules,” Allie Renison, head of Europe and Trade Policy at the Institute of Directors, said in a statement.

Negotiators should aim for a customs agreement that creates minimum disruption for importers and exporters, Renison added.

Managing uncertainty

Alex Stojanovic, director of the Centre for Governance, Risk and Accountability at the University of Greenwich, explores ways businesses can manage the uncertainty surrounding future trade and customs arrangements. Here are his comments:

“For exporters or importers, who naturally buy or sell the pound to convert the cash flow from their regular business, the immediate operational focus should be on currency risk management. The pound has already adjusted downwards to the level that most observe to be the real bottom, implying that the only way is up. There are still some who think that parity with the euro, and maybe even the dollar, is in the cards in the medium term.

“Nonetheless, the majority of non-financial firms are not in the business of making money through currency speculations, and there seems to be a lot of volatility ahead. This calls for hedging with derivatives. Most well-established international firms are well-versed in currency risk management, but it is worth briefly revisiting the arguments for different risk hedging instruments and strategies.

“At a basic level, and assuming a similar level of trade taking a short- to medium-term horizon of the next 12–18 months, the company treasury could: (a) ‘fix’ the exchange rate through forward or futures contracts or (b) protect against the downside and benefit from the upside of exchange rate movements with currency options or options on futures contracts. Larger businesses may also engage in currency swaps, but for shorter periods they are expensive and rarely used. Financial options are generally more expensive than futures (off-the-shelf, exchange-traded contracts) and forwards (customised, one-to-one contract) but provide the flexibility to benefit from a potential (small) rise in sterling. Each sector will have established practices and preferences for the most suitable option.

“However, currency risk management will not … address the more fundamental or strategic aspects of volume of trade (import or export of goods and services that is a function of demand and supply, competition, and market share) and the profits in the original currency (that depends on the price, volume of sales, and costs). The depressed pound should continue to benefit the exporters though.”

Related CGMA Magazine content

“How to Prepare for Brexit’s Effects on Supply Chains”: The exact details of how Great Britain’s exit from the EU will affect company supply chains remains unknown. But Brexit arguably provides opportunities for businesses to plan for the changes and seek ways to capitalise on them.

“What Brexit Means for the Talent Pool”: HR specialists give their view on the implications for access to talent in the UK and what organisations can do to shore up their talent pipelines.

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